The California State Teachers’ Retirement System is the largest teachers’ retirement fund in the United States, and at the end of last year it had more than 850,000 members and $148 billion in assets.
Yet according to a report released Wednesday by State Controller John Chiang, the massive system lacks controls to detect and prevent unusually large payouts — also known as pension spiking. Chiang’s report was based on an independent review of five school districts, including the San Francisco Unified School District, to see if the agencies “had controls in place to provide reasonable assurance that pension spiking could be prevented or detected.”
Pension spiking is a systemic problem across public-service unions, and it usually occurs when employees inflate their salaries for their final year or years of employment to receive larger payouts upon retirement. The state Legislature recently passed a measure that takes a small step toward ending pension spiking among state, county and city workers by limiting the maximum amount that can be counted toward retirement payouts.
Chiang’s audit, however, found that the CalSTRS system lacked the firepower to audit its system and oversee the 1,900 reporting agencies — including elementary, high school and community college districts — to prevent pension spiking.
One disturbing fact in the report was the frequency with which CalSTRS audits such agencies. According to the report, the retirement system conducts 40 audits a year. At that glacial pace, each reporting agency would receive an audit just once every 48 years — more than enough time for an employee to spike his or her pension, retire, and, perhaps, even pass away before being detected.
Yet since the report indicated that a whopping 40 percent of the audits conducted by CalSTRS do find incidents related to pension spiking, increasing the number of these probes will save taxpayers money in the long run. As of September of last year, there was even a backlog of 33 audits, further setting behind a key check in the system.
The report outlines several fixes that could help reduce pension spiking among California’s public-school teachers, including better use of an existing CalSTRS system to electronically monitor and flag possible cases of pension spiking. The audit says that system needs refinement.
Not all of the blame for such pension spiking falls to CalSTRS. The report also looked at a handful of school districts and found that those agencies lacked the transparency and internal controls to prevent pension spiking. If school districts themselves do not put pay-raise checks into place, the responsibility for preventing pension spiking will fall fully upon CalSTRS.
In its response to the report, CalSTRS said it had implemented many of the recommendations made in the report, but that is not enough.
Pension reform cannot be accomplished with the wave of a wand. Instead, it will require a continued march toward developing controls that properly dole out retirement funds while making sure people are not cheating the system. CalSTRS and California’s school districts share the responsibility for making sure there are safeguards in place to cut down on abuse of the system.